79Portfolio Construction inGlobal Financial Markets Dallas Brozik and Alina M. Zapalska*AbstractThis paper presents a classroom simulation that can be used to introduce theconcepts of portfolio management and asset allocation in the presence of globalmarkets. While there are portfolio management games and stock trading gamesthat are designed to cover an entire semester, this simulation provides a singleperiod introduction to portfolio management. The simulation also creates anenvironment in which students discover how exchange rate volatility can affectinvestment returns of global funds.IntroductionTeaching and learning about global and international issues consist largely ofpresenting and discussing basic economics and nancial principles as they apply tointernational activities. Since the foundation or core of the economics and nancecurriculum is teaching and learning about the basic principles within bothdisciplines and how they are applied, activities related to international trade orinternational nance can be included as another aspect of these areas. Choosingwhich of the many concepts related to international trade or nance should betaught is in itself an exercise in judgement since the amount of time available forfocusing on these concepts is scarce relative to the topics that should be taught.There is general agreement that students should be familiar with and understandwhy international trade occurs, how the US companies conduct international trade,how international trade is nanced, and how nations restrict and encourageinternational trade. While studying and learning about topics related tointernational trade, students should be able to recognise that costs and benets arealways hard to measure and evaluate both in short-run and the long-run situations.This is a difficult task when analysing issues related to global economy andparticularly to such concepts as foreign exchange rates.InternationalReviewofEconomicsEducation80Deciding which international concepts to teach is the rst step. The second step isthe decision of how to teach the selected concepts. A major factor determiningteaching effectiveness is the method chosen, and an instructor who has a relativelygood understanding and appreciation of teaching international issues can try newand different activities in the classroom (Torney-Purta, 1996).A variety of teaching techniques can be used including debates, case studies,worksheets, class surveys, writing projects, graphing exercises, data analysis andclass discussion. It has been recognised that there are also many opportunities tointegrate simulations and games into teaching and learning international concepts(Zeff, 2003). Games and simulations can be used to demonstrate principles andprovide experiential learning. This type of active learning provides both studentsand instructors with a break from the traditional classroom lecture and can be usedto highlight and support lecture-related materials. Interactive learning activities canbe designed to be short, taking less than a single class period, or long enough tospan several class periods.Single-period activities have several advantages. A single-period game orsimulation can be rich enough to provide a multi-level learning experience.Several different interactions and principles can be demonstrated with a properlyconstructed single-period simulation. The richness of the experience can then serve as a springboard for several future classroom discussions or lectures. Asingle-period activity also is exible. An instructor can move such an activity fairlyeasily if it is appropriate to reschedule it; multi-period activities can make theinstructor a prisoner of the calendar.The subject of the game or simulation can often dictate the length of the activity.Simple concepts, like a demonstration of the free rider problem in economics, mayrequire multiple repetitions of short activities. Simulation of the complexities ofbank management can span an entire term. Creating single-period games andsimulations that span multiple periods requires that the designer isolate afundamental concept to be demonstrated and develop a scenario that will playsmoothly.The lessons learned from using simulations and games may vary in the level ofeconomic sophistication of the students (Ellington and Fowlie, 1998). Games andsimulations can empower students by allowing them to take the initiative andcreate an environment of peer-based learning. This allows students to work inteams constructing knowledge together, providing insight and motivation to eachother (Ruben, 1999). This paper describes how teachers can use a simulation toteach portfolio construction and asset allocation in a global economy. PortfolioConstructioninGlobalFinancialMarkets81This paper presents a portfolio simulation that spans several planning periods yetcan be completed in a single class period. The simulation can be used to introducethe concepts of portfolio management in a global economy to inexperiencedindividuals and can thus serve as a good introduction to this topic. This simulationalso creates an environment in which students discover how exchange ratevolatility can affect investment returns of global funds.Literature reviewThe recent literature in college educational techniques indicates a steadilyincreasing degree of interest in the use of active learning with simulations andexperiential learning (Bouton and Garth, 1983, Cooper and Mueck, 1990 and Malerand Keenan, 1994). In particular, the analysis of the effectiveness of businesssimulations and experiential learning reveals a number of studies that support theusefulness of the games and simulations (Becker, 1997; Johnson and Johnson, 1989;Sharan et al., 1984; Zapalska and Brozik, 1998).Simulations contribute to the learning process, particularly in transferring learningfrom the conceptual base to its ultimate application (Jones, 1998; Durham et al.,2007). A strong relationship between the degree of perceived realism and theperceived contribution of the simulation or game has been observed in most of thesimulations discussed (Lantis et al., 2000). These exercises were developed as realworld simulations, and they have proven excellent vehicles for encouraging deeplearning and improving student appreciation of the complexity of business.Another reason for the use of games and simulations is that they provide studentswith an alternative to traditional classroom methods (Durham et al., 2007). Gamesand simulations can be quite useful in illustrating how real institutions function andallow students to see how a business or an institutional structure can affect howdecisions are made in the real world. The instructor must always keep in mind thatgames and simulations must t the educational purpose of the course, but the useof such alternative teaching techniques can improve student learning.A number of games and simulations have been developed to enhance studentslearning in economics and nance (Wilson, 2005). These exercises create anenvironment in which students have the opportunity to experiment with newconcepts in market situations. For example, Ball and Holt (1998) describe aclassroom market that permits a comparison of trading prices for an asset with itsfundamental value. The exercise provides an interactive framework to facilitatediscussion of rational expectations, discounting, and speculative price bubbleswhere students become active players. Similarly, Laury and Holt (2000) complementthe literature on classroom experiments by describing the role of banks in creation InternationalReviewofEconomicsEducation82of money where students become involved in the money-creation process throughan exercise in which they take on the roles of a banker, depositors and borrowers.Gitman (1974) illustrates a game designed to provide players with experience inthe development and implementation of an investment strategy where players areprovided with an uncertain environment in which they have to make strategicdecisions to maximise their wealth. Wingender and Ball (1988) present a portfoliomanagement simulation where students construct and manage simulatedportfolios to test and apply various nance models and formulas, and Palia (1991)introduces product portfolio analysis where students can apply their knowledge ofportfolio analysis in strategic market planning.In contrast to the previously discussed papers on portfolio simulations, the gamepresented in this paper provides a student-centered and problem-based learninginstrument about portfolio analysis in a global economy. The players are expectedto maximise returns on investment portfolios for various groups of investors andexperience how exchange rates can affect returns in a global economy. Suchexperimental games provide students with a better understanding of theeconomic concepts because students learn from their own experiences. The use ofexperimental games contributes to students learning and makes studentclassroom study more real as students become an important element in thelearning process.The simulationThis portfolio management simulation has been designed to provide students withthe opportunity to make portfolio decisions in the context of a dynamic globalnancial market. Students create three different portfolios whose returns aredetermined for each period by a roll of the dice. The randomness introduced by thedice simulates real world market conditions and eliminates the possibility of anyplayer being able to predict the direction of the simulation.The simulation focuses on asset allocation and provides the players with severalasset classes to choose from for the various portfolios. By keeping the focus tightand providing all necessary information, it is possible to simulate four differentportfolio decision periods in a single class period. This allows the students toexperience the results of their decisions immediately, to change their portfolios inresponse to market conditions, and to see the effects of those changes. The playersalso learn how the volatility of foreign exchange rates can affect the returns of theinvestments from outside the home country. PortfolioConstructioninGlobalFinancialMarkets83In order to complete the simulation within a single period, the students must beprepared when they walk into class. Prior to the simulation, students are divided intogroups of two or three and given the Simulation Instructions (Document 1). Thestudents are required to devise three separate portfolios (conservative, middle-of-the-road and aggressive) using assets from six specied classes (government bonds,corporate bonds, blue chip stocks, midcap stocks, speculative stocks andinternational stocks) and cash. By requiring the students to prepare the initialportfolio allocation outside of class, each team has the time to develop strategiesand contingency plans for various possible market conditions. The informationpacket also includes the forms necessary to record decisions and results.The Simulation Support Documents (Document 2) give the instructor the formsneeded to conduct and record the results of the simulation. These forms include aSummary of Dice Rolls sheet that identies the period returns for each asset classand for the exchange rate between dollar and foreign currencies for each roll of thedice (a pair of dice must be provided by the instructor). This sheet translates theprobability distributions for the returns of the asset classes to the roll of the dice.There is also a form for recording the results of each period and a form forsummarising the results of the entire simulation. It can be useful to copy theseforms onto transparencies and display the information for the entire class.Document 2 also includes four different news releases. These documents provideinformation that can be presented to students between rounds so that it might affecttheir decisions for the subsequent portfolio allocation. The important thing to noteabout this information is that it is of no use whatsoever in the simulation. While thewords and ideas presented may sound similar to news releases heard every day, themere existence of the words does nothing to change the probability distributions ofthe returns of the asset classes. Less sophisticated players may assume that theinformation has value and base their decisions accordingly. The value of informationthus becomes a topic for discussion during the debrieng of the simulation.The play of the game is straightforward. Each team of students enters the class withits initial asset allocation for each of the three different portfolios. The instructorthen rolls the dice, and the count of the pips determines the period return ongovernment bonds. The instructor rolls the dice ve more times to determine theperiod return for each of the other ve asset classes. The instructor then rolls thedice to determine the effect of exchange rate changes on the returns of theinternational stocks held in the portfolios. The entire process takes about oneminute. The information is recorded on the Single Period Results summary sheet,and this can be displayed on an overhead transparency for a few minutes to assurethat all teams have the correct value. InternationalReviewofEconomicsEducation84The teams now calculate the end-of-period value of their portfolios and determinethe allocation of assets for the next period. Each portfolio starts with an initial valueof $1,000,000. If, for example, a certain portfolio earned $100,000 during the rstperiod, then there would be $1,100,000 to allocate for that portfolio for the secondperiod. It is during this period of calculation and reallocation that the instructormay choose to display one of the news releases. If the returns have been low, theinstructor can use either of the news releases that speak of current poor marketconditions. The news releases have no effect on the next roll of the dice; they arethere only to establish the value of irrelevant information.After the teams have rebalanced their portfolios, the process is repeated. Theinstructor rolls the dice, the returns of each asset class and the effects of theexchange rates are determined, and the teams calculate the value of each portfolioand rebalance it for the next period. The instructor can display another newsrelease during this period. The time needed to calculate the values of the portfoliosand make the allocation decision is about 10 to 15 minutes. Even in a 50-minuteclass, there is sufficient time for at least three rolls of the dice and two rebalancings.The fourth round of the dice is the nal round. The value of each portfolio iscalculated and reported to the instructor who records it on the Final Results sheet.It is a good idea to have this sheet as a transparency so that all teams can see theresults for every team. It should be noted that there is no particular identication ofany team. This is not necessary because the simulation has no winners or losers.Different teams can be making what they consider to be rational portfoliodecisions, but the roll of the dice determines which is the most and least protable.DebriengIt is important to provide an oral debrieng so that students can analyse and learnfrom what they have just experienced (Steinwachs, 1992). Debrieng a simulationencourages students to describe what just happened, how the events of thesimulation validate or contradict theory, how real the simulation was, and if theprocess involved in the simulation accurately depicts reality (Petranek, 2000). It alsogives students time to reect and gain perspective, more carefully organise theirideas, and apply theory.During the debrieng there should be a discussion on the Final Results that allowsthe comparison of results and identies differences, both high and low, in thevalues of given portfolios. The debrieng can now be turned to the various teams,and they can be asked why they made the choices they did. This discussion showsthat a simple difference of opinion can have tangible results on portfolioperformance. This also illustrates why the various mutual funds in the market can PortfolioConstructioninGlobalFinancialMarkets85have different returns even if they have the same investment philosophy. The valueof market information like the news releases can also be discussed.The focus on the debrieng session should be on how and why the portfoliostructure decisions were made. The results will indicate which strategies were themost and least protable in this market session, but it should be pointed out that ifthe dice had fallen differently the results could have changed. The instructor is alsoexpected to discuss how the volatility in exchange rates affected the investmentreturns. The debrieng session should enable students to recognise that despitethe best intentions of the portfolio managers, the real world will have its own inputto portfolio performance. By allowing students the ability to make multipleallocation decisions within a single period, they can see how different strategic andtactical plans may succeed or fail.It is also important to involve students in expressing their learning experiences inwritten form. Integrating this simulation into a written assignment makes thestudents take the simulation more seriously and allows them to apply a moreexacting analytical approach to the lessons learned.ConclusionThe Portfolio Construction in Global Financial Markets simulation is a primarylearning experience that can help the students understand some basic conceptsthrough their own involvement in the learning process. Its strength derives fromthe fact that students learn by analysing their own behaviour and observations in asituation that imitates the real scenario of portfolio managers. The class interactionproduces a role-playing situation that involves the student at an emotional level tothe extent that great effort is made by the instructor to preserve the substantiveaspects of the game. Students observation of experimental games and the abilityto connect the real-world analogues to events and factors in the simulation leads toan easier and less stressful learning environment.The simulation creates a dynamic environment in which students make decisionsconcerning portfolio structure and see the results of those decisions. Personalinvolvement helps students retain the experience and provides a powerfultechnique that increases student interest and understating of the basic economicconcepts. Students are able to see the interconnectedness of political, social,interpersonal, economic and historical factors.The simulation focuses on the decision-making process during several roundscompleted within a single class period and introduces students to portfoliomanagement and the effect that changing exchange rates can have on a portfolio. InternationalReviewofEconomicsEducation86The simulation does not require a detailed knowledge of the various asset classesthat generate returns, so the simulation can be conducted with students with littlenancial and economic sophistication. The simulation can be used early in aninvestments class to introduce students to the broad concept of the portfolio orlater in the class to allow students to exercise their decision-making capabilities in adynamic market setting.One key aspect of the simulation is that there are no winners or losers. The purposeof the exercise is to explore decision-making techniques and see the results ofspecic decisions. The debrieng session allows the class members to discuss thenature of their decision making, and comparisons can be made between variousteams in a noncompetitive environment. Everyone can learn from everyone else.Portfolio Construction in Global Financial Markets provides instructors with aneffective interactive learning tool that can be used to augment traditional teachingtechniques and give students new insights into what is sometimes challengingmaterial.DOCUMENT 1SIMULATION INSTRUCTIONSPORTFOLIO CONSTRUCTION IN GLOBAL FINANCIAL MARKETSBackgroundThe purpose of a portfolio is to diversify investments and possibly control risk.Portfolios that are widely diversied tend to have returns similar to the overallmarket. Portfolios that have a more narrow scope may provide returns similar to aspecied economic or geographic segment. Even such narrow portfolios canprotect the investor from the volatility of returns of a single stock. Portfolios can beuseful to all types of investors.You and your team members are the managers of a family of mutual funds. Each ofthese funds offers investors the chance to own part of a portfolio, but the portfoliosare constructed differently to meet the needs of different investors. The funds youoffer are: Stay-at-Home Fund (SH) This fund is designed to meet the needs of moreconservative investors, like retirees and those who are not inclined to take risk.While these investors do not want to take a lot of risk, they need as much returnas possible in order to supplement their current income and meet livingexpenses. PortfolioConstructioninGlobalFinancialMarkets87 Out-in-the-World Fund (OW) This fund is meant for people who are currentlyemployed and still have several years to work. These investors are able to take asmall to moderate amount of risk in hopes that the returns from the portfoliowill augment future retirement income. They will tolerate some lossesperiodically, but they want the fund to have overall positive returns more oftenthan not. Life-on-the-Edge Fund (LE) This fund is designed for investors who are willing totake high amounts of risk. They have sufficient other income to meet their livingrequirements, but they would really like to be much wealthier than they arenow. They will tolerate losses more easily than other investors, but they expecthigher returns for bearing this additional risk.Your job is to construct different portfolios from the assets currently available in themarket that meet the needs of these different classes of investors. Once you havemade your initial allocation of funds, time will pass in the market, and the success ofyour decisions will be determined. You will then be able to rebalance your portfoliofor the next period. After several periods, the overall results will be reviewed todetermine whether or not you were successful in managing these portfolios.Possible investmentsIn constructing your portfolios, you will be able to choose between several differenttypes of investments. The distribution of returns for each is shown below. You willbe able to choose any of these investments for any of the portfolios, and you canput several of these investments into any specic portfolio. Note that a portfoliocontains more than one of the possible investments.Cash Funds held as cash will earn 1%.Government Bonds High-grade, low-risk federal and state debt securities.3% 4% 2%. 78. 11Probabilityof ReturnPossible ReturnsInternationalReviewofEconomicsEducation88Corporate Bonds High/medium-grade, low/medium-risk corporate debtsecurities.Blue Chip Stocks High-grade/low-risk corporate equity securities.MidCap Stocks Medium-grade/medium-risk corporate equity securities.Speculative Stocks Low-grade/high-risk corporate equity securities.6% 8% 4%417% 5%68Probabilityof ReturnPossible Returns10% 15% 8%.31.1112% 5%.19.28Probabilityof ReturnPossible Returns15% 6%5412% 4%38Probabilityof ReturnPossible Returns30% 5%7715% 10%51Probabilityof ReturnPossible ReturnsPortfolioConstructioninGlobalFinancialMarkets89International Stocks Medium-grade/medium-risk international equity securities.One-period Change in the Exchange Rate between the Dollar and Other Currencies(This value reects the effect on the total return of international investments)Portfolio formationYou and your team have been allocated $3,000,000 of which $1,000,000 must beused for each of the specic funds (SH, OW, and LE). For each of the funds, do thefollowing:Outside class:1. Consider the investment goals for each fund. Think about what types ofinvestors provided the money for the fund and what types of investmentswould be appropriate for these individuals.2. Allocate the $1,000,000 for each fund. You must select at least two of the sixpossible investments for each fund (after all, you do want some diversication).No more than 70% of the money can be put into any single investment. Forexample, you may choose to make the following investments for the SH Fund:$500,000 in Corporate Bonds, $300,000 in Blue Chip Stocks, $100,000 inSpeculative Stocks, and $100,000 in International Stocks. Remember that youhave $1,000,000 for each Fund, so you must construct three different portfoliosto meet the needs of the different investors.3. Notice that investment returns of International Stocks will be affected by theuctuation in an exchange rate of the US dollar. For example, if you allocated$100,000 in International Stocks and the US dollar depreciated by 10 per cent5% 20% 5%415% 10%29Probabilityof ReturnPossible Returns0% 10% 5%45% 10%732% 2%8Probabilityof ReturnPossible ReturnsInternationalReviewofEconomicsEducation90then your returns on International Stocks will decrease by 10 per cent, that is arate of depreciation of the US dollar.4. Use the attached form to designate how much money you chose to put intoeach investment for each portfolio.In class:5. In class, the instructor will roll the dice. For each possible investment, the dicewill decide which possible return actually occurred. For example, the dice maydetermine that Corporate Bonds provided a 7% return for the period. The dicewill also be rolled to determine the effect that a change in exchange rates willhave on the realised returns of any investment in international stocks.6. Using the form, determine how much money you made or lost on eachinvestment. For example, if you allocated $200,000 to Corporate Bonds, youearned $14,000 for you portfolio.7. Find the new total amount of money you have in each of your portfolios.8. You will now be given the opportunity to rebalance your portfolio. Forexample, you may originally have chosen to allocate $200,000 to CorporateBonds for the SH portfolio. In light of the change to the portfolio, you may wishto change this allocation, either up or down. You may even choose to replacethe Corporate Bonds with Government Bonds for the next period. You willneed to review each portfolio and reallocate funds as necessary.9. The dice will be rolled again, and you will again determine how your portfoliosperformed in the new time period.10. If time permits, you will be allowed to rebalance your portfolios a second time,and a third round of dice will be rolled.11. At the end of the simulation, you will determine exactly how much money youhave in each portfolio. Please note that having a lot of money in a portfoliomay not be the best result; it also matters how you got it there. If you chose tomake risky investments for a conservative portfolio, the extra money you mayhave earned was made by exposing your investors to too much risk.12.A quick survey will be taken to determine how each group fared in the simulation.Outside class:Each group will prepare a report describing the results of the simulation. Only onereport is required for each group. This means that you will have to work together onits construction and review the nal product. Group work requires the input ofeveryone in the group in order to be successful. This report will include anexplanation of why the original portfolios were constructed as they were and howthis plan worked during the rst round. For each subsequent round, the reportshould detail the reasons for making changes to the portfolios and how well thatdecision worked. A summary section should be included that reviews the overallsimulation and your relative success in it. The original forms you used in classshould be included as attachments to the report. PortfolioConstructioninGlobalFinancialMarkets91STAY-AT-HOME FUND PERIOD 1INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 2INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 3INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 4INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUE InternationalReviewofEconomicsEducation92OUT-IN-THE-WORLD FUND PERIOD 1INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 2INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 3INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 4INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUE PortfolioConstructioninGlobalFinancialMarkets93LIFE-ON-THE-EDGE FUND PERIOD 1INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 2INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 3INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUEPERIOD 4INVESTMENT AMOUNT ALLOCATED ($) RETURN EARNED END OF PERIOD ($)END-OF-PERIOD PORTFOLIO VALUE InternationalReviewofEconomicsEducation94DOCUMENT 2PORTFOLIO CONSTRUCTION AND MANAGEMENTSIMULATION SUPPORT DOCUMENTSSUMMARY OF DICE ROLLS ON INVESTMENT RETURNSGOVERNMENT BONDSroll: 5 return: 2%roll: 2, 3, 4, 6, 7, 8, 10, 11, 12 return: 3%roll: 9 return: 4%CORPORATE BONDSroll: 3 return: 4%roll: 5 return: 5%roll: 2, 4, 7, 10, 11, 12 return: 6%roll: 6, 8 return: 7%roll: 9 return: 8%BLUE CHIP STOCKSroll: 5 return: 5%roll: 2, 4, 10 return: 8%roll: 3, 7, 11, 12 return: 10%roll: 6, 8 return: 12%roll: 9 return: 15%MID-CAP STOCKSroll: 2, 4 return: 4%roll: 3, 5, 10, 11 return: 6%roll: 7, 8, 9, 12 return: 12%roll: 6 return: 18%SPECULATIVE STOCKSroll: 2, 3, 4, 8, 10, 11, 12 return: 10%roll: 9 return: 5%roll: 5, 6 return: 15%roll: 7 return: 30%INTERNATIONAL STOCKSroll: 2, 5 return: 10%roll: 6, 10 return: 5%roll: 3, 7, 11 return: 5%roll: 4, 8 return: 15%roll: 9,12 return: 20% PortfolioConstructioninGlobalFinancialMarkets95EXCHANGE RATE FOR THE U.S.DOLLARroll: 4 APPRECIATION 10%roll: 6 APPRECIATION 5%roll: 3, 5 APPRECIATION 2%roll: 2, 7, 12 NO CHANGE 0%roll: 9, 11 DEPRECIATION 2%roll: 8 DEPRECIATION 5%roll: 10 DEPRECIATION 10%SINGLE PERIOD RESULTSROUND 1 ROUND 2 ROUND 3 ROUND 4GOVERNMENT BONDSCORPORATE BONDSBLUE CHIP STOCKSMID-CAP STOCKSSPECULATIVE STOCKSINTERNATIONAL STOCKSEXCHANGE RATE EFFECTCASH 1% 1% 1% 1%FINAL RESULTS: PORTFOLIO VALUESPORTFOLIO SH OW LETEAM 1TEAM 2TEAM 3TEAM 4TEAM 5TEAM 6TEAM 7TEAM 8TEAM 9TEAM 10InternationalReviewofEconomicsEducation96NEWS RELEASE 1WASHINGTON, DC:The National Economic Research Department has just released its latest economicforecast. The recent strong performance of the nancial markets is expected tocontinue for the immediate future. The reduction in the foreign trade decitcoupled with the recent reports on factory orders indicate that the economyshould remain strong and returns on investments should be high for the nextperiod.NEWS RELEASE 2WASHINGTON, DC:The National Economic Research Department has just released its latest economicforecast. The recent strong performance of the nancial markets is expected tomoderate in the immediate future. Indications of a lower number of housing startsand an increasing rst time unemployment rate could create the conditions thatstall economic growth. In such a climate, investors should expect weakerperformance from their investments in the next period.NEWS RELEASE 3WASHINGTON, DC:The National Economic Research Department has just released its latest economicforecast. Though the nancial markets have been mixed recently, the next period isexpected to show improvement in all areas. New housing starts and job creationdata indicate that there will be more economic growth and that this growth shouldbe reected in the returns earned by investors.NEWS RELEASE 4WASHINGTON, DC:The National Economic Research Department has just released its latest economicforecast. The recent weak performance of the nancial markets is expected tocontinue for the immediate future. An unfavorable foreign trade decit andincreasing government debt both point to an upcoming period of poor nancialperformance. PortfolioConstructioninGlobalFinancialMarkets97ReferencesBall, S. and C. Holt (1998) Speculation and bubbles in an asset market. Journal ofEconomic Perspectives. 12 (1): 207218.Becker, W. (1997) Teaching economics to undergraduates. Journal of Economic Literature.35(3): 13471373.Bouton, C. and R. Garth (1983) Learning in groups. San Francisco: Jossey-Bass Inc.Cooper, J. and R. Mueck (1990) Student involvement in learning: cooperative learningand college instruction. 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International Studies Perspectives. 3:265275.Contact detailsDallas BrozikProfessor of FinanceDivision of Finance and EconomicsLewis College of BusinessMarshall UniversityOne John Marshall DriveHuntington, WV 25755Email: brozik@marshall.eduAlina M. ZapalskaProfessor of EconomicsDepartment of ManagementThe U.S. Coast Guard Academy27 Mohegan AvenueNew London, CT 06320Tel: 860-444-8334 Fax: 860-701-6179 Email: Alina.M.Zapalska@uscg.mil*We would like to thank an anonymous reviewer for correctly pointing out thatthis simulation is intended to be used as an introduction to asset allocation andportfolio management. A more realistic simulation would require a morecomplex specication of the various returns distributions that takes into accountthe correlation of returns between the several asset classes.